I know this often comes across as simply common sense, but you might be surprised how often people speed through the opening step to your eventual financial freedom, retirement, etc., which is selecting the right financial advisor for your needs. You’re essentially preparing to build a house, and starting with a solid foundation is of the utmost importance. You wouldn’t put a house down on muddy, unstable swampland, right? Get the foundation right, and the rest of the process will move more smoothly, with a greater sense of stability as well.
Here are a 4 key questions to ask, very well prepared by Kali Hawlk, that will help you choose… wisely.
1. Will You Sign a Fiduciary Oath?
Asking whether or not a financial advisor will work with you as your fiduciary is crucial. It’s a funny-sounding word, but it is seriously significant when it comes to finding the right financial advisor for you.
A fiduciary is an expert in their field who utilizes their knowledge, skills, and abilities to provide you with the best possible outcomes for your situation. In this case, a financial advisor working as your fiduciary is someone who has sworn to always act in your best interest when it comes to your finances—and not their own.
Shouldn’t all professionals work in their clients’ best interest, especially when it comes to money? Well, yes, but unfortunately, this doesn’t always happen.
Some financial advisors don’t receive the bulk of their earnings in the form of actually doing financial planning for their clients. Instead, they receive commissions from products they sell (like insurance or certain types of investments).
This incentivizes the financial professionals who work under this model to push products people don’t really need, or to encourage one investment decision over the other…not because it’s the best choice, but because it provides the advisor or planner with the largest payout.
Advisors who work as fiduciaries on your behalf swear not to advise you to make inappropriate financial decisions or to buy financial products you don’t need or aren’t right for you. If any financial advisor refuses to sign a fiduciary oath, you should refuse to entrust them with your wealth.
2. How Are You Compensated?
Anyone working so closely with your money should be transparent about how they earn their own.
Financial advisors can earn their own money in many different ways. Some are “fee-only,” which means they charge a fee or particular rate for their financial planning services. These advisors do not earn commissions from your assets or your purchases on products like insurance (and often, fee-only financial advisors don’t even sell insurance).
There are also “fee-based” advisors. They may also charge you a fee for services, but they may also earn commissions off your investments or products they provide to you.
Once you determine whether or not a financial advisor is fee-only or fee-based, take the next step and ask what your specific costs will look like. You need to know exactly how much you’re expected to pay, so you can determine if the value you feel an advisor can offer you is worth what they would charge.
3. What Services Do You Provide?
A financial advisor may tell you that your costs will depend on the services you use. This is perfectly reasonable—but don’t forget to follow up and ask for information on exactly what services are available to you.
This will not only help you nail down a precise cost, but it also allows you to ensure a financial advisor actually offers services that will help you reach your specific goals. If a financial professional doesn’t offer a certain type of planning assistance that you feel you need the most help with, that advisor probably won’t be a good fit.
4. What Experience Do You Have Working as a Financial Advisor?
As mentioned above, anyone can call themselves a financial planner. While they may be perfectly lovely people with a sincere want to help others, only a CFP® is a certified financial planner.
This means they have met a certain amount of training, hours or years of practical experience, and regularly go through recertification processes to ensure they’re up-to-date and aware of the latest developments in financial planning.
There are other certifications, as well. Financial professionals can be a certified public accountant-personal financial specialist (CPA-PFS), just a CPA, or a chartered financial consultant (ChFC).
Before choosing a financial advisor, be sure to ask about what kind of experience they have, what their educational backgrounds are, and if they have any kinds of certifications.
Knowing the experience and education of a financial advisor can help you determine whether or not you feel comfortable working together with that individual if they aren’t professionally certified by a recognized organization. It takes years to become a CFP® , so it’s completely understandable if a financial planner has set up his or her firm while working on their certifications and designations.
Keep those 4 questions at the ready as you contiune your search for your own ideal financial advisor, and you’ll feel much better about the entire process.
— Billy Crafton, Financial Advisor
Credits: Questions to Ask Before Choosing a Financial Advisor | FeeHacks
